On Bloomberg Surveillance this morning (11/16/2022), Dr. Lindsey Piegza (Stifel Institutional, Chicago) spoke with superior understanding of the implications of the present state of the tiers of income flows in the economic process. Interviewer Lisa Abramowicz (Bloomberg) asked good questions.
L. Piegza said that there is evidence that people in the lower income brackets, who usually spend all their income on point-to-point (basic) items, are exhausting their previous cash cushion of extra money for basic goods and services; so now they appear to be cutting back on purchases of both brand-name and luxury items? The real economy is showing signs of contraction, with implications for recession and unemployment.
In the following, as usual, the reader should refer to the Diagram of Rates of Flow which represents the dynamics of the double-circuited, crossover-connected, credit-centered economic process.
We quote Lonergan speaking analytically regarding the rate of point-to-point (basic) Incomes-Expenditures vs. the rate of point-to-line (capital) Incomes Expenditures and their concomitant desired adjustment of demand in the particular phase of the pure cycle of expansion:
The purpose of this section is to inquire into the manner in which the rate of saving W is adjusted to the phases of the pure cycle of the productive process. Traditional theory looked to (manipulating) interest rates to provide suitable adjustment. In the main we shall be concerned with factors that are prior to changing interest rates and more effective. ¶The simplest manner of attaining a fairly adequate concept of basic income is to divide the economic community into an extremely large number of groups of practically equal income. … In any group i let there be at any given time ni members; let each member receive an aggregate (basic and surplus) income yi per interval, so that the whole group receives niyi; finally, let us say that the group directs the fraction wi of its total income to the basic demand function, so that basic income per interval is given by the equation
I’ = Σwiniyi
… and so one obtains for the increment per interval of basic income the simpler equation
δI’ = Σ (wiδni + niδwi)yi Ftnt 189 re dwidni
where ni includes the adjustment due to migration. We shall consider in turn variations in basic income in virtue of δni and variations in virtue of δwi . … Hence, in migrations from low to less-low income groups, most of the increment of individual total income becomes an increment of basic income; but in migrations from high to still higher income groups, most of the increment of individual total income becomes an increment of surplus income. Evidently, then, suitable migrations are a means of providing adjustments in the community’s rate of saving. To increase the rate of saving (for real investment), increase the income of the rich; while they may be too distant from the current operations of the economic process to judge, at least they can put their money into the bank or bonds or stocks, and perhaps others there will see how it can best be used. To decrease the rate of saving, increase the income of the poor. … The foregoing is the fundamental mode of adjusting the rate of saving to the phases of the productive cycle. …(and) this fundamental mode of adjustment is complemented by a further mechanism of automatic correction. (price changes) (CWL 15, 133-134)
For the full context of a) rising and falling prices, b) falling and rising purchasing power, c) the shift of the burden and benefit of changing prices, and d) the ineptitude of manipulating interest rates, please read in its entirety Section 26, “The Cycle of Basic Income”, in CWL 15, 133-144.
Also, please take a minute to review and appreciate how money circulates within the double-circuited process:
… if the real flows of goods and services move, as it were, in straight lines from the potentialities of universal nature, on the other hand, the dummy flows of money and monetary substitutes, of cash and credit, move in circles. The same currency is used over and over; the same accumulation sustains indefinitely a given volume of credit. One must not be misled by the name ‘circulation’ into thinking of dummies as moving with an angular velocity. They lie very quietly in the reserves of individuals, firms, banks. Only at the instant of exchange or loan do they move and then their movement is instantaneous. The meaning of the term ‘circulation’ is that these instantaneous movements in various directions have to balance with opposite movements. There has to be equilibrium. … funds, like rivers, can be permanent principles of flow only on condition that they permanently are fed by tributary streams. (CWL 21, 57-58)
The simplest manner of attaining a fairly adequate concept of basic income is to divide the economic community into an extremely large number of groups of practically equal income. (CWL 15, 133-134)
For further perspective re cost-price spirals under particular conditions of proper and improper borrowing and lending through the horizontal and vertical channels of the Diagram of Rates of Flow, see The Road Up Is The Road Down: The Mechanism of Rising and Falling Prices, Tom Keene is Correct About Analysis Organized by Deciles , and read CWL 15, Section 26, “The Cycle of Basic Income,” pp 133-44.
Readers should overlay onto the two Incomes circles (the monetary demand circles) of the Diagram of Rates of Flow their own bar graph of income tiers whose data they can find in such as a) the Bureau of Census – Income in the United States: 2021, (Click here and here) or b) other sources.
Also commentators on the macroeconomic process, on Bloomberg, Squawk Box, and Mornings with Maria, and on the process’s prospects for investments, should read a) below, a Draft of Useless and Useful terms, and b) Prediction is impossible in the general case:
Useless Terms (descriptive and/or metaphorical)
- Soft landing
- Hard landing
- Glide path
- The consumer
Useful Terms (analytical and scientific)
- Dynamic equilibrium
- Implicit definition
- Explanation vs. description
- Point-to-point (basic)
- Point-to-line (capital, producer-goods)
qi = ΣΣqijk (for context see CWL 15, 30)
kn [f’n(t-a)-Bn] = f”n-1(t) – An-1 (CWL 15, 37)
- Basic and surplus Outlays, Incomes, Expenditures Receipts
- Pure cycle of expansion
- Phase of the pure cycle
- dQ’/Q’, dQ”/Q”
- Rate of saving
- Income brackets or tiers
- G = c”O” – i’O’ = 0 (the condition of dynamic equilibrium)
- Z = PQ cos A
- DZ =
- dI’ =
- df =
- dJ =
- functional congruence
- field theory